An entertaining and thoughtful perspective on advertising, politics and other useless things...

Monday, October 29, 2018

Saudi Arabia and Silicon Valley’s Crisis of Conscience

Mark Zuckerberg meets with Mohammad bin Salman (Reuters)

“There
is a higher court than courts of justice and that is the court of conscience.
It supersedes all other courts.”-Mahatma
Gandhi

Governments routinely do business
with oppressive regimes based on geopolitical, intelligence-sharing and
counter-terrorism requirements. I am not absolving governments, but merely
stating the realities of operating a complex and increasingly inter-connected
world where it is harder to be black and white about these choices. However the
same constraints do not hold true for private corporations. There is nothing
preventing them from boycotting or refusing to take money from bad actors and brutally
oppressive regimes, particularly when they go against the stated values of the
company.

I think we can also make a
distinction between older generation of companies and the new ones in the
digital age. The Exxon Mobiles and Goldman Sachs’s of the world never claimed
to be ‘do-gooders’ or touted the inherent social values of their business
models. They were clear about focusing on the bottom line, profits and
increasing shareholder value above all else and did not care if they were
profiting from Mother Theresa or Nicolas Maduro.

However, Silicon Valley startups have
always claimed to have a strong moral compass and repeatedly tout the social
good they do and stand for. They have corporate motto's that say things like “Don’t be Evil” and spend much on PR touting all the good they do in the
world. Yet the vast majority of these same companies have found ways to
rationalize and do business with Saudi Arabia. Uber justified its launch in
Saudi Arabia in 2014 by saying it would help women who were not allowed to
drive, even though Saudi women were against Uber launching.

While it is true that Saudi rulers
have always ruled with an iron fist, most limited their brutality to within
their own borders and also took pains to manage the optics for
their democratic and freedom-loving allies. However, with the appointment of
Mohammed bin Salman, or MBS as he is known, the Kingdom’s transgressions have
not only grown bolder but now go well beyond their borders.

The Prince began his reign by
extra-judicially imprisoning elite businessmen and ruling family members, reportedly torturing and coercing them to hand over billions in
cash and properties, publicizing his actions as a ‘crackdown on corruption'. He
also purged the security services and other high ranking government officials,
filling key posts with loyalists. He has placed his mother under house arrest to keep her from advising her husband, the King, whose health
is dwindling and his moments of lucidity said to be fleeting.

It is true that MBS has opened a few
movie theaters and has finally given Saudi women the right to drive, but at the
same time he has jailed and exiled leading women activists, purged
the clerical ranks and ruthlessly suppressed all dissent. Yet, Silicon Valley has been championing MBS as
great reformer. It seems that the billions invested in
cash-starved Unicorns have washed away all of MBS’s sins and Silicon Valley’s
corporate ethics along with them.

Companies ranging from Google and Facebook to
Blackrock have all been clamoring to shake MBS's hand and strike lucrative
deals with the Kingdom. It is no surprise then that MBS grows more reckless,
as companies continue to pat him on the back, and
felt emboldened enough to brazenly murder a journalist who was a US
permanent resident, and expected to face no consequences for
this heinous crime.

·Saudis own 5% in Tesla, 5% in Uber (making them the largest
shareholder), 5% of Lyft, 5.2% of Twitter (which is more than Jack Dorsey owns)
and 2.3% of Snapchat.·They invested $461 million in Magic Leap, the hottest US
virtual reality company.·They have committed $20 billion to Blackstone Group’s
infrastructure fund.·Through the Softbank Vision Fund, in which Saudi Arabia is
the principle investor, they have invested:o$4.4 billion in WeWorko$2.25 billion in GM Cruise HoldingsoThey own shares in WAG, Slack, Door Dash and SoFi.

It is true that the Saudi’s have
also invested in UK, French, Indian and Chinese companies but the bulk is US
based companies.

I am not naïve and understand that
business cannot succeed based on purely moral decision-making; profit motives
will always collide with doing what is right. For the most part companies manage
to find a reasonable balance between these two competing forces, but my issue
is that Silicon Valley pretends to wear morals and principles on its sleeve,
preaching that their growing monopolies are forces for good. How do they
justify being owned and increasingly funded by entities that make no bones
about having neither morals nor principles?

A large part of the problem lies not
in capitalism itself, but in the broken system of capitalism Silicon
Valley has engineered and vigorously championed in the last few decades. It is
a system that encourages a winner-take-all mentality and even rewards companies
that are not profitable.

Instead of using sound business
metrics like earnings, sales or revenue to measure companies, Silicon Valley
has made it dangerous and fashionable to look purely at things like
‘stickiness,’ in terms of how often users interact with a service or app on a
daily basis. As a result, companies are being incentivized to make long-term
losses and thus need constant infusions of cash to grow artificially and
rapidly expand their base of users.

Some of the most highly valued startups
today even lack real competitive differentiation and barriers to
entry like Uber and WeWork, so the only thing fueling their competitiveness
is infusions of cash. The issue with this winner-take-all model of capitalism,
one devoid of business fundamentals, is that it encourages companies to cut
corners, act in cut-throat ways, and ignore the most basic principles of
ethical behaviour - simply to stay ahead of competitors.

Ultimately, this model leads to
running out of ‘good’ money and avenues for hyper-growth, and startups are
forced to compromise on their stated ideals and acquiesce to any suitor with
deep pockets.

The truth is that this discussion
around Saudi Arabia’s behaviour should have taken place a long time ago. To
some extent one can understand why governments need to deal countries whose
values conflict with our own, but it is harder to make a case for why companies,
especially those who claim to cherish ‘values’ as a primary reason for their own
existence, are in bed with them.

While it is true that many CEO’s
like Jamie Dimon of JP Morgan Chase, Dara Khosrowshahi of Uber, and Larry Fink
of Blackrock dropped out of the recent Saudi investment conference, the BBC
reported the majority of these companies still sent junior executives to
represent them. Not one of them has cut business ties with Saudi Arabia, and I
suspect that no matter what the outcome of the Khashoggi murder investigation is,
most of them will not sever ties, as Larry Fink stated on CNBC.

Irrespective of whether MBS is
directly implicated or not, I hope that Mr. Khashoggi’s brazen and brutal
pre-meditated murder will serve as a wake up for the rest of us. While I do not
expect Tesla, Uber or WeWork to be returning the billions they have received
anytime soon, I do hope we will begin to hold
these companies more accountable for their actions and stop being swayed by their words alone.